Ratcheting Down Paris Targets
By Rishikesh Bhandary
There is a clear and unequivocal gap between what countries have promised to do to tackle climate change, via their pledges under the Paris Agreement, and where we need to be, according to science, if we are to limit warming to 1.5-2 degrees Celsius. One in-built lever in the Paris Agreement to increase ambition is carbon markets. In Madrid, policy makers tried to complete negotiations on this issue but were unable to do so. Based on the potential loopholes that the draft rules would have created, a delay is not the worst possible outcome. In other words, there was a real risk that markets could dampen ambition rather than enhance it. Countries now have another year to make sure that doesn’t happen.
Fang Zhang and Rishikesh Bhandary at the Tufts delegation booth at COP25.
There were at least three ways in which the rules on carbon markets could have opened the door to dilute down pledges: importing credits from the Kyoto Protocol; double counting emissions reductions; and lax rules. Through the Kyoto Protocol’s CDM, countries can use offsets created in developing countries to meet their Kyoto targets. The CDM has a substantial number of projects in its pipeline and many projects continue to be operational. Project owners have pushed for a wholesale adoption of the CDM into the Paris Agreement. Opening the floodgates on CDM projects into the Paris compliance periods would provide a disincentive for countries to mitigate their emissions further as they can rely on emissions reductions certified via the CDM to meet their targets. In Madrid, the final version of the draft rules allowed countries to use CDM credits to be their towards NDCs until the end of 2025 (CERs issued prior to December 2020). [On the question of countries using their unused Kyoto allowances to meet Paris targets, the text was silent.]
Countries also needed to close the door on double counting of emissions reductions. Under the Kyoto Protocol, double-entry bookkeeping of carbon credits was not necessary because only one party to the transaction (industrialized countries) had targets. Under the Paris Agreement, not only do developing countries also have targets, but they are also tremendously diverse in their forms. Some countries cap emissions from certain sectors while leaving other sectors untouched. A question that dogged negotiators was: should countries be allowed to sell offsets from sectors that they don’t regulate in their pledges? The problem is not so straightforward. Banning credits from uncapped sectors might weaken confidence to eventually take on targets in those sectors, or countries could simply view uncapped sectors as a source of carbon revenue and lose the incentive to bring all sectors within their pledge. The final version of the draft rules allowed for countries to opt out from making “corresponding adjustments” whereby the deduct the offsets sold from their national accounts for a period to be specified at a later date.
Paris carbon markets also have a chance to finally breathe life into forestry credits but there were demands to exclude forests. Tackling forest loss provides a significant and cost-effective opportunity to reduce emissions. There is imminent demand for forestry credits once the international aviation body’s (ICAO) plan to reduce emissions (CORSIA) kicks into gear in 2020. By excluding forestry, countries such as Brazil that have large hydroelectric dams – eligible under the CDM rules – would be able to absorb a substantial share of this new demand. Furthermore, Brazil’s position stems from CDM interest groups vying for international carbon market opportunities and a government that is worried about needing to increase effort if forestry credits were sold off to other actors since Brazil would no longer be able to claim those under its own national balance.
What does the failure to finish negotiations on the details of Article 6 mean? First, a completion would have provided a positive signal about the ability of the UNFCCC process to deliver. By delaying for an additional year, however, countries have been able to stave off loopholes that would have weakened ambition. Second, we now have a lot more clarity on the issues at stake and where parties diverge. Article 6 negotiations remained hobbled by procedural challenges for most of the Paris rulebook negotiations process. In identifying the crunch issues, we now have clarity on what to focus on. Third, the delay in the UNFCCC puts the focus on CORSIA to agree on stringent environmental standards. ICAO had long looked to the UNFCCC to agree on standards for offsets, however, with the delay in reaching agreement, countries will have to work out the standards under ICAO in 2020. Similarly, this delay also puts the attention on voluntary carbon standard-setters to craft standards fit for the Paris era. By setting a high benchmark that companies can get behind, voluntary carbon standards may help to nudge the parties to towards higher levels of environmental integrity.
Not concluding negotiations on carbon markets should not be seen as a vote of confidence against the Paris Agreement. Agreeing on the rules on the table in Madrid would not have given us the kind of environmental integrity we need. While ambition is in the DNA Paris carbon market provisions, if the above-mentioned loopholes are not sealed in the future, we will be ratcheting down ambition instead.
Rishikesh Bhandary was a Tufts delegate to COP25 made possible by the Tufts Institute of the Environment (TIE) and financially supported by the Center for International Environment and Resource Policy (CIERP). Should you be affiliated with Tufts University and interested in being a Tufts delegate to COP in future years, please visit: https://environment.tufts.edu/initiatives/events/unfccc-cop/. For more information on CIERP, please visit https://sites.tufts.edu/cierp/.